U.S. urges Japan to act Ruling party's loss seen as an opening for speedy reforms

Vote a 'wake-up call'

LDP still in power

Hashimoto successor likely to be a veteran

July 14, 1998|By Mark Matthews | Mark Matthews,SUN NATIONAL STAFF

WASHINGTON -- Japanese voters' stunning rebuke of their ruling party Sunday may prod Tokyo to undertake the sweeping economic reforms long demanded by the United States to help lift Asia out of crisis, but the changes must be swift, American analysts said yesterday.

"I think there's a good case that this will be a net plus," said Ernest Preeg, a specialist on international business at the Center for Strategic and International Studies.

"If this wake-up call does get the political leadership in Japan to act decisively, it would be a very substantial plus in terms of the overall financial crisis in Asia."

But a senior Clinton administration official cautioned that "window of opportunity" for reform could quickly close if the reorganized Japanese government fails to seize the initiative.

Prime Minister Ryutaro Hashimoto announced his resignation yesterday after his Liberal Democratic Party lost 17 seats in the upper house of parliament, a humiliation that defied pollsters' predictions.

"I'm responsible for all that happened, and my ability was not sufficient," the prime minister said in a televised speech. Although he will serve as a caretaker until a successor is picked, he canceled official trips this month to the United States and France.

Despite the obvious setback, Sunday's vote still left the LDP in power, and the most likely successors to Hashimoto come from deep within the party's ranks.

The two most prominently mentioned possibilities are Foreign Minister Keizo Obuchi, 61, the head of the largest faction in the LDP, and Seiroku Kajiyama, 72, the LDP's senior lawmaker and chief secretary in Hashimoto's first Cabinet.

One Asia expert said a much bigger jolt was still needed to shake up the Japanese establishment; without it, Asia's battered economies would get worse before they can recover.

A 'Perot protest'

"You've got to look at the upper-house election as a Perot protest," said Robert Manning, director of Asia studies at the Council on Foreign Relations, referring to Texas billionaire and two-time presidential contender Ross Perot, who helped knock George Bush out of the White House.

For all its troubles, Japan still has relatively low unemployment and inflation, Manning said. "Daily life is not catastrophically worse," he said. "The only thing that gets Japan to act is a real shock."

For months, senior officials from the United States and other industrial countries have warned Japan that it must cut taxes to free domestic spending, clean up its banking system and loosen its regulatory system to revive its economy and to help provide support to international markets.

Hashimoto's government proved unable to force Japan's powerful combination of elite bureaucrats, business and politicians to bend, resulting in Japan's worst recession since World War II.

Japan's economy is the world's biggest except for America's. Its troubles have deepened an Asian economic slump brought on by a financial crisis that spread through Thailand, Indonesia and South Korea.

Yesterday, Japan's political uncertainty sent Asian stock and currency markets reeling with fear that the region's economic malaise will deepen. Markets in Europe and the United States, however, had no strong reaction.

Sunday's vote was a "clear message of disapproval from the Japanese people," said Preeg of the CSIS.

The Clinton administration wasted little time yesterday in repeating its demands for economic reform, while avoiding direct comment on internal Japanese politics.

"It's very important to the United States that the new government, whatever its composition, move quickly to implement concrete fiscal and banking measures to achieve strong domestic demand-led growth in Japan and to restore confidence in Japan's financial system," said White House spokesman Michael D. McCurry.

"A healthy Japanese economy is critical for the Asia region and for the global economy, and the United States will work on the assumption that the new Japanese government will see that it is in its own best interest to pursue economic reform expeditiously," he said.

A senior Clinton administration official, speaking on condition of anonymity, said much depends on whom the party taps to succeed Hashimoto.

Kingmaker's choice

Obuchi would be preferred by the LDP's power behind the scenes, former Prime Minister Noboru Takeshita. However, he has a lackluster reputation and would be tainted by his membership in Hashimoto's Cabinet. Kajiyama would be more likely to stimulate reforms, the official said. And Takeshita may be inclined to let Kajiyama assume that role if only to avoid making Obuchi get his hands dirty in the current tough political environment.

Analysts cautioned that Sunday's vote, by itself, would not bring systemic change in Japan, but may spur it along.

"The LDP still rules," said Nathaniel B. Thayer of the Johns Hopkins School of Advanced International Studies, formerly a top analyst of Japan for the Central Intelligence Agency.